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The Australian Business Cycle: A New View

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  • Harding, Don

Abstract

In this paper I address the following questions. - Has the business cycle become longer and shallower? And why? - How stabilizing is monetary policy. In answering these questions I summarize recent research undertaken by Adrian Pagan and myself that formalizes the procedures developed by Burns and Mitchell at the NBER. Defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects with the way policy makers and commentators discuss the cycle. After discussing how to extract cyclical information my attention then turns to describing the features of the Australian business cycle. Here I employ recently constructed data on annual GDP that goes back to 1861. The recurrent pattern of peaks and troughs in this annual data marks out recessions that are somewhat more severe than that seen in quarterly data. I find little evidence that these major contractions are shorter in the second half of the 20th century than they were in the second half of the 19th century. Major expansions in the late 20th century were, however, longer than for any previous period. I find that the volatility of annual GDP growth rose markedly in the first half of the 20th century but declined to an all time low in the second half of that century. However, the decline in volatility between the late 19th and late 20th centuries is not very marked. After examining the quarterly data available from 1959.3 to 2001.4 I find little evidence that contractions are shorter but there is some very weak evidence that the amplitude of these contractions has moderated. The apparent decline in volatility of Australian GDP is shown to be explained by two statistical factors viz there is some residual seasonality in GDP which seems to be more pronounced in the 1960 and 70s and the ABS has reduced the extent of measurement error in GDP. After accounting for these no long run trend is discernable in volatility.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3698.

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Date of creation: 03 Apr 2002
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Handle: RePEc:pra:mprapa:3698

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Keywords: Business cycle; growth cycle; turning points; monetary policy;

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References

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  1. Burnside, Craig, 1998. "Detrending and business cycle facts: A comment," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 513-532, May.
  2. Durland, J Michael & McCurdy, Thomas H, 1994. "Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 279-88, July.
  3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  4. Soderlind, Paul, 1994. "Cyclical Properties of a Real Business Cycle Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S113-22, Suppl. De.
  5. Arturo Estrella & Frederic S. Mishkin, 1995. "Predicting U.S. Recessions: Financial Variables as Leading Indicators," NBER Working Papers 5379, National Bureau of Economic Research, Inc.
  6. Cogley, Timothy, 2001. "Alternative definitions of the business cycle and their implications for business cycle models: A reply to Torben Mark Pederson," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1103-1107, August.
  7. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  8. Harding, Don & Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July.
  9. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  10. Diebold, Francis X & Rudebusch, Glenn D, 1990. "A Nonparametric Investigation of Duration Dependence in the American Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 596-616, June.
  11. Don Harding & Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series wp1999n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  12. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, octubre-d.
  14. Goodwin, Thomas H, 1993. "Business-Cycle Analysis with a Markov-Switching Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 331-39, July.
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Cited by:
  1. knani, ramzi & fredj, ali, 2010. "Mondialisation et fluctuations des cycles économiques
    [globalisation and business cycle fluctuation]
    ," MPRA Paper 22755, University Library of Munich, Germany.
  2. Christian Gillitzer & Jonathan Kearns & Anthony Richards, 2005. "The Australian Business Cycle: A Coincident Indicator Approach," RBA Annual Conference Volume, in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
  3. Stan du Plessis, 2005. "Reconsidering the business cycle and stabilisation policies in South Africa," Working Papers 10, Economic Research Southern Africa.

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